Expert Opinion: The importance of income protection insurance

17th to 21th October marks Income Protection Insurance Week, a timely reminder of the importance and value of being protected against the impact of reduced pay due to long-term illness or injury, which in itself can be a stressful time for the person off work, as well as their family: C&C Insurance Brokers explain:

The cost of living crisis has been well documented, hitting employees with ever-rising costs for fuel, energy, goods, services and of course rents and mortgages. But it’s also impacting employers with many looking to make cost savings, particularly on the more discretionary aspects of their overheads, for example, sick pay. Employers are under no obligation to pay anything beyond Statutory Sick Pay (SSP) although many do out of sheer decency for their employees. However, with costs rising across the board and ever-increasing numbers of suppliers wanting to be paid on a pro-forma basis, employers are seeing trimming the amount of sick pay they’re willing to commit to, as a means of contributing to these increased costs or cashflow challenges.

If managing the cost of living is becoming a challenge for employees whilst they are fully fit, the consequences of a significant drop in income onto partial sick pay or even SSP could be catastrophic. According to the Association of British Insurers’ Welfare Reform Report, one million workers find themselves unable to work due to serious injury or illness every year. What’s more, around 250,000 people leave employment each year due to ill health.

“I don’t need protection insurance – I get sick pay from work”

It’s a commonly heard objection when income protection insurance is discussed. The reality of is that many UK workers are not entitled to sick pay, or if they are, their sick pay provisions will be insufficient to meet all of their regular outgoings, particularly long-term. Other objections may include “I’m too young”, “I’m healthy”, and “if I’m ill I won’t be off for a long time”, especially in younger clients. Whilst statistically, a younger person is less likely to need a long period off work, particularly with a physical injury or life-threatening disease, mental health issues are growing considerably. And mental health challenges are universal, regardless of age.

Insurance firm Zurich reported that the proportion of income protection claims made by individuals citing mental health problems in the UK more than doubled to 27% in 2020, from 13% in 2019 (Personal Finance Society July 2022).

Furthermore, according to Global Data’s report, “UK Income Protection Insurance Market to 2025”, mental illness-related claims accounted for the largest proportion of paid income protection claims value in 2020, at 32.4%.

Although the income protection market rebounded in 2021 –the number of contracts rose by 10.5%, only 6% of the UK population have income protection in place. [Global Data July 2022]

Income protection insurance can be tailored to suit the needs of employers and their employees but typically covers up to 80% of an employee’s salary and can be adapted for various deferred periods and payment periods.

In addition to the employee receiving essential income during the period they are off work, an indirect benefit is that the employee isn’t sucked into the trap of presenteeism and returns to work far too soon, whilst being essentially unable to do their job role effectively.

Lee Southwood of C&C Healthcare has over 25 years experience of working in the income protection insurance sector says:

“Now more than ever, people should be looking to protect against the consequences of being off work due to illness and injury, for long periods of time. The rising cost of living is biting hard for many and SSP will barely scratch the surface for most people’s outgoings. It needn’t be expensive, especially when you consider the cost of not having the cover, should illness or injury ever arise.”